Major development in competition policy on merger control in France with online distribution brought into the definition of relevant markets

The 10 March 2018

The decision to clear FNAC/Darty merger (Decision No. 16-DCC-111 of 27 July 2016) represents a significant development in the decision-making practice of the French Competition Authority in the field of merger control. It is also likely to influence the law on anticompetitive practices.

• Major breakthrough in decisional practice of competition policy on merger control

The full text of the decision has not yet been made public. In effect, there is always a delay between the announcement of the decision on the Competition Authority’s website or publication of a press release and its publication in full, in order to allow the parties to redact any confidential information they wish to have protected.

The press release published on 18 July 2016 is however sufficiently explicit and shows the distinct change in the Competition Authority’s decisional practice. In effect the Authority expressly declares that it is “develop[ing] its market assessment and considers that retail distribution of brown (TV, cameras and audio sets: MP3, DVD and Blu-ray players…) and grey products (communication and multimedia: tablets, laptops, smartphones, etc.) includes both sales completed in-stores and online. It deems that competitive pressure exerted by online sale has become significant enough to be integrated in the oncerned market, whether it comes from pure players (such as Amazon or Cdiscount) or from the stores’ own websites which complete in-store physical sales”.

This development is not a one-off decision on a particular case but a deliberate change of direction. The President of the Authority had previously announced the advent of this new approach on several occasions, including on 21 June 2016 during a hearing by the National Assembly’s Economic Affairs Commission and on 6 July 2016 during a presentation to the press of its 7th Activity Report.

It is however important to be clear about the scope of this breakthrough.

It does not mean that the Authority did not previously take account of competitive pressure from the internet in its assessment of merger operations. It has done so for some although not at the market definition stage but during its competitive analysis. It was thus able to authorize a concentration which resulted, inter alia, in the acquisition of a market share of 47% on the retail market for internet access distribution in light of the competitive pressure exerted on brick and mortar distributors by online sales (see Decision No 14-DCC-15 of 10 February 2014, LawLex201400001751JBJ).This same approach has also been taken by other national authorities (see for the UK: OFT Decision of du 26 October 2011, Amazon/The Book Depository; CMA Decision of 30 June 2016, Mapil Bidco Ltd/Chain Reaction Cycles Ltd, Hotlines Europe Ltd and Decade Europe Ltd; and in the Netherlands, NMa Decision  of 28 August 2008, Gouden Gids/De Telefoongids).

The inclusion of online sales in the market definition phase constitutes a fundamental and welcome change to the law in France given the massive growth of this type of distribution channel. It had become increasingly absurd for the competition authorities to pursue an intransigent policy with regard to the restriction of online sales compared to sales in stores while continuing to assert that the channels did not belong to the same market. The Authority has in fact merely aligned itself to more advanced laws in this area. The US authorities have been authorizing mergers based on the competitive pressure exerted by online trade for a number of years now (see relative to the office stationery market, Office Depot/Office Max merger, FTC Decision of 1 November 2013)

It is also important to be aware of the limitations of this breakthrough. FNAC considered that the competitive pressure from online sales required a national market definition since the pricing policy of pure players such as Amazon or Cdiscount is national. The Authority has not yet crossed that bridge and has stayed with the traditional analysis of local competition by catchment area estimating for each local area the market share of the new entity and its competitors, including online operators, which resulted in it ordering six stores to be divested in Paris and its suburb, i.e. operation of stores under another brand.

We can only hope that the Authority will take this evolution to its logical conclusion by abandoning the analysis by catchment area too.

In any case, this significant breakthrough in competition policy could allow for the recognition of national markets integrating internet sales within conventional markets. We are referring in particular to TV advertising for which the competitive pressure from the internet is head-on and unrelenting. Other sectors, where competition from the Internet is much less intense, the conventional market rationale may continue to prosper.

• To what extent will the law on anticompetitive practices be affected?

The FNAC/Darty decision concerns merger control. We know that the definition of markets is not necessarily the same for merger control as for abuse of dominant position and even less so with regard to the law on restrictive agreements. Merger control is subject to a prospective analysis while a finding of abuse of dominant position is based on a post hoc analysis of past behavior. For a case in the pet food sector, the European Commission was thus able to give a broad definition in the field of merger control (Commission Decision EC No M.2544 of 15 February 2002) while the French Competition Council at the same time adopted a very strict and limited definition of the market of top-of-the-range dry dog food sold in specialized channels in a matter of abuses of a dominant position (Competition Council decision No 05-D-32 du 22 June 2005, LawLex200500006651JBJ).

However, in the present case, the difference of approach should not lead to outcomes that are fundamentally different from each other. The rise in the power of the internet and competitive pressure is not new. The economic weight of the internet giants (GAFA) has been upsetting the balance of power for some time now. In the field of online sales in particular, marketplaces now have the market power, rather than conventional distributors or suppliers. Therefore, there is no reason that the new approach of the Competition Authority adopted in the context of the control of concentrations should not also develop in the field of anticompetitive practices.

This decision could also be an opportunity for the competition authorities to revisit their highly favorable approach to online operators in the area of vertical agreements. For many authorities, any restriction of online sales and even any difference in the conditions of remuneration between online sales and sales in physical stores (see Germany, Bundeskartellamt decision of 13 December 2011, Dornbracht; of 28 November 2013, Gardena; of 23 December 2013, Bosch Siemens Hausgeräte GmbH; of 18 July 2016, Lego) constitutes a restriction by object and a hardcore restriction. The considerable market power of internet players that the decision of the Authority has finally addressed should perhaps lead competition authorities to show less bias and more neutrality towards online operators.


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